US TPC Group buyout would not be surprising – analyst

26 July 2012 21:09  [Source: ICIS news]

NEW YORK (ICIS)--A leveraged buyout of US-based butadiene (BD) producer TPC Group would “not be surprising”, one Wall Street analyst said on Thursday.

Shares of TPC jumped $5.50, or 16.4%, to $39.97 following a Bloomberg article, which reported that the company was in exclusive talks to go private in a leveraged buyout (LBO) for around $600m (€492m), or $40/share.

“If a deal were to occur, it would not be surprising given TPC’s number one position in the critical niche butadiene [BD] market that is in structural shortage,” said Edward Yang, analyst with global investment bank Oppenheimer.

“It is believed that a customer had bid for the company in 2007, and the butadiene market has since tightened considerably,” he added.

Peter Young, president of US-based investment bank Young & Partners, noted that TPC Group has “been for sale at various times over a number of years.

“If they are going private, they certainly would need to have a private-equity partner,” he added.

Oppenheimer’s Yang said that a buyout at $40/share would be opportunistic and undervalue TPC at 10.2 times estimated 2013 earnings, 5.0 times FV/EBITDA [firm value/earnings before interest, tax, depreciation and amortisation] and an FV of $865m versus $1.9bn replacement value.

Fair value equals equity market value plus net debt.

Shareholders could also view a $40/share bid as undervaluing the company on four points, said Yang.

“TPC was above $45/share in April; it is currently under-earning due to legacy contracts entered in 2009, expiring this year; the recent short-term dip in US BD appears to be reversing as Asian prices rise; and the company has targeted doubling-to-tripling run-rate EBITDA of $140M within the next four years,” he said.

TPC Group did not immediately respond to a request for comment.

($1 = €0.82)

By: Joseph Chang
+1 713 525 2653

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